California and Massachusetts regulators have decided to allow Uber drivers to be considered independent contractors rather than employees, a distinction crucial to the success of the ride-sharing app. But it’s hardly the last word on the matter. The left has been vilifying Uber as the villain of the new “gig economy,” in which more and more workers—especially younger ones— support themselves as self-employed contractors, stitching together a variety of app-enabled tasks. Liberals consider such arrangements largely exploitative—with companies such as Uber getting fabulously rich while the contractors doing the work hustle, scrape, and scuffle for crumbs. Uber corporate employees, after all, enjoy fringe benefits, unemployment insurance, and job security; the drivers do not.
“Uber Is Not the Future of Work,” proclaimed Lawrence Mishel of the left-wing Economic Policy Institute in the pages of the Atlantic. Bernie Sanders posted Mishel’s article on his campaign website and has declared he has “serious problems” with “unregulated” businesses like Uber. Last year Hillary Clinton got in the mix, saying the gig economy raises “hard questions about workplace protection and what a good job will look like in the future.”
These arguments distract from some of the key benefits of a gig economy. An economy with a greater proportion of independent contractors is one that is less susceptible to the vagaries of the business cycle. Recessions should be shorter and cause less unemployment if the economy has more independent contractors.
The gig economy is no disaster. It not only empowers more people to be their own bosses, it has benefits for the rest of the economy too.
In a recession triggered by a decline in demand—which is the ultimate cause of most recessions—the initial decline in sales that most companies experience forces them to make a determination: Is the decline a short-term phenomenon or something more significant? It’s an impossible task, at least at first, so companies typically hedge their bets by keeping idle or underemployed workers on the payroll, since it can be costly to reacquire and train new workers when they need them back. When companies do lay off workers, they would rather not rehire them until they are nearly 100 percent sure they will need them for an extended period of time. This is because so much of the cost of a worker—especially expensive, skilled workers—is in the form of fixed fringe benefits that can’t be scaled back. That is why many companies respond to a nascent economic expansion by having existing workers work months or more of overtime before they finally hire reinforcements.
When workers are independent contractors, as they are with Uber, a recession doesn’t necessitate that the costs be fully borne by the relatively few people who lose their jobs. In an economy with more independent contractors, a reduction in demand gets spread out. While incomes do fall, there are fewer people without jobs than in a non-gig economy. Gig economies dampen the employment swings within a business cycle—a good thing. Given that it’s the young and unskilled whose careers bear the brunt of the long-term costs of any recession, this should be hailed as a welcome evolution in the economy rather than something that needs to be fixed.
Foes of the gig economy would argue their unsteady income in a recession is precisely what is wrong with the gig economy, but I would argue that it’s much better for the pain of a recession to be spread out among millions of workers whose livelihoods are modestly dented than for it to be concentrated on a few who lose their jobs altogether. As long as there’s a business cycle, hours, employment, or compensation will have to fluctuate to match demand. We should want employment to be last on that list, but so much in our labor market causes employment to fall first. For instance, union contracts can make it very difficult for companies to save money by reducing the hours each employee works.
Corporate profits already fluctuate more than labor market variables over a business cycle, so Bernie-sian suggestions that corporations should somehow bear the brunt of the business-cycle downturns neglect the fact that this already occurs.
When health care costs are some 30 to 40 percent of a worker’s compensation, labor markets aren’t flexible. For all its faults, the Affordable Care Act did make it less expensive for most people to acquire health insurance on their own, freeing millions of Americans to work for themselves without worrying about access to health insurance.
Nancy Pelosi crowed in 2010 that the Affordable Care Act would help people escape their jobs and do more fulfilling things. That these new, self-directed gigs don’t look precisely like Democrats thought they would—apparently the left wanted more buskers and community activists, not cabbies—should be irrelevant.
The gig economy is no disaster. It not only empowers more people to be their own bosses, it has benefits for the rest of the economy too. Before the Democratic party makes the end of gigging a party-platform plank, it might want to look at those benefits and recalibrate its rhetoric.Ike Brannon is a visiting fellow at the Cato Institute.
America’s international position is distinguished by its alliance networks. Presidential candidates decry today’s dangerous world, yet the U.S. is allied with every major industrialized power, save China and Russia. It is a position Washington’s few potential adversaries must envy.
Unfortunately, littering the globe with security commitments is costly. The U.S. must create a much bigger military to project force abroad to protect countries that often matter little for this nation’s security. Moreover, while military tripwires are supposed to prevent war, they ensure involvement if deterrence fails.
Equally important, America’s defense guarantees turn friends and allies into dependents. The principle is the same as domestic welfare. Why do it yourself if someone else will do so?
In his recent interview in the Atlantic Monthly President Barack Obama complained: “Free-riders aggravate me.” Unfortunately, Washington has created a world filled with free- or at least cheap-riders.
The president recently visited one of the targets of his ire: Saudi Arabia. The royals long ago assumed the U.S. military would act as their de facto bodyguard. The first Gulf War was more about the Kingdom of Saudi Arabia than Kuwait.
At least the KSA began putting more money into its military when it perceived the Obama administration’s commitment to Riyadh was waning. The kingdom was outraged at Washington’s nuclear negotiations with Iran and refusal to directly intervene in the Syrian civil war. Yet the “alliance” still has dragged the U.S. into the KSA’s war in Yemen, which has gone from local civil war to regional sectarian conflict.
Washington has created a world filled with free- or at least cheap-riders.
Content to spend barely one percent of its GDP on the military throughout the Cold War while facing the Soviet Union and Maoist China, Japan has started doing a bit more. It appears Tokyo is worried that Washington might not go to war with Beijing over the Senkakyu/Diaoyu Islands. Japan only recently passed legislation allowing its military to aid U.S. forces under attack. For decades Japan’s only responsibility as an ally was to be defended.
Washington’s Korean commitment grows out of the Korean War, which ended 63 years ago. Since then the Republic of Korea has raced ahead of the North, with an economy as much as 40 times as large, a population twice as big, and a dramatic lead in technological prowess, international influence, and most every other measure of national power.
Yet the ROK, facing a supposed existential threat, spends a lower percentage of its GDP on the military than does America. Although Seoul’s military is qualitatively superior to that of the North, South Korea’s forces lag in quantity. Because the ROK expects to be defended by America.
Then there are the Europeans. Foreign policy should be based on circumstances. After World War II Western Europe was prostrate and Eastern Europe had been swallowed by the Soviet Union. Today the Europeans not only vastly outmatch Russia, their only potential antagonist, but they possess a larger economy and population than America.
Yet Washington’s desperate, even humiliating pleas for its allies to do more continue to fall on deaf ears. Secretary General Jens Stoltenberg took great pleasure earlier this year when he announced that NATO’s European members only slightly reduced their military outlays in 2015, after years of significant cuts. Such is considered progress.
In all of these cases the U.S. has variously insisted, demanded, and requested that its friends do more. When they did not, it often turned to begging and whining, with no greater success.
One could at least argue during the Cold War that it was in America’s interest to defend countries even if they would not protect themselves. No longer. Washington faces no hegemonic threat, no ideological competitor, no international peer. There isn’t any “there there,” as Gertrude Stein said of Oakland.
Yet the alliances commit America to go to war in defense of other nations’ interests. At the same time such guarantees dissuade friendly states from doing more on their own behalf. If deterrence fails, as it often has throughout history, the good times will come to a dramatic and bloody end.
Washington has tolerated allied free-riding for far too long. It’s time for America to engage in burden-shedding rather than hope for burden-sharing. In its quest to maximize its number of allies the U.S. has needlessly created a gaggle of dependents.Doug Bandow is a senior fellow at the Cato Institute.
Our cellular phones, the U.S. Supreme Court recently opined, contain “a digital record of nearly every aspect of [our] lives - from the mundane to the intimate.” Indeed, many of us use our cellphones to privately convey our love, our insecurities, our fears, our locations, and our most sensitive relationships.
Yet right now, across the United States, law enforcement agents have secret, unfettered access to all of it, and the government is trying to keep it that way.
It was recently revealed that the FBI has been colluding with the Oklahoma City Police Department to conceal the use of equipment capable of powerful, surreptitious, and constitutionally dubious cellphone surveillance. The device, known as a StingRay, operates by mimicking the signal of a cell tower. The StingRay puts out a boosted signal that muscles out the signals of legitimate cell towers and forces nearby phones to connect to the device.
Government surveillance techniques will continue to advance with the pace of technology.
Once your phone is connected, the operator of the device can triangulate your position, see the incoming and outgoing numbers, and by all indications intercept the actual content of your communications. Police often deploy StingRays without probable-cause warrants or, in some cases, court orders. Even when police seek warrants and orders, the federal government has coached them to mislead judges about precisely what they are being asked to authorize.
StingRay deployments have been confirmed in at least 24 states and the District of Columbia, and there is every reason to believe many of the remaining states possess them and simply haven’t been forced to disclose it. Different departments have different deployment policies, but cities such as Baltimore have admitted to deploying the devices in thousands of investigations.
Given such widespread use, and such obvious and troubling privacy implications, one would expect to find a large body of court rulings on the constitutionality of warrantless StingRay surveillance. One would be mistaken.
Notwithstanding a promising recent Maryland appellate court ruling that StingRay surveillance is unconstitutional without a warrant, police departments in the rest of the country remain generally free to use the devices in complete secrecy. Shockingly few cases have been reviewed by the courts, and judicial and legislative oversight of law enforcement StingRay use is virtually nonexistent as a result. That secrecy is by design.
One of these terms, discovered only after a litigious freedom-of-information request by the New York Civil Liberties Union, explicitly forbids law enforcement and prosecutors from disclosing information about StingRay capability or use. The prohibition even applies to judges and defense attorneys, leaving the typical checks on police misconduct in the dark.
The agreement even allows the FBI to force state prosecutors to drop evidence or entire cases rather than reveal the use of StingRay surveillance. And that condition isn’t hypothetical; it has actually happened around the country, resulting in dangerous criminals being let go or given sweetheart plea deals in order to maintain secrecy.
The agreement in the Oklahoma case is alarming because it goes even a step further. Rather than merely order the Oklahoma City Police Department not to disclose information regarding StingRay use, the memorandum tells the department to construct an entirely independent investigation around the “lead” created by the StingRay to obfuscate the source of the evidence.
In legal circles, this practice is known as “parallel construction,” and it is particularly effective at concealing government investigative methods as well as government misconduct. In a parallel construction, the government uses evidence produced through confidential (or improper) means to create a new, seemingly independent investigation of illegal activity.
For instance, an illegal search of a target’s trash could reveal the time and location of a future drug deal. A police officer could then follow the target on the night of the meeting and use any number of pretextual traffic violations to justify a stop and dog sniff of the car. When the drugs are discovered and the case goes to court, the government behaves as if it were the random traffic stop, and not the illegal search, that led to the arrest.
This “evidence-laundering” tactic conceals evidence from the court and from the defense, and as of September 2014, the FBI was explicitly counseling the Oklahoma City Police Department to use parallel construction to cover up its use of StingRay surveillance.
This deceit makes it difficult, if not impossible, for defendants to challenge the legality of the surveillance. Combined with the nondisclosure terms, parallel construction helps explain why there has been so little judicial oversight of StingRay use despite thousands of deployments across the country.
Government surveillance techniques will continue to advance with the pace of technology. If the Fourth Amendment and the concept of individual privacy are to have any meaning at all moving forward, the judicial and legislative branches of government must take a stronger interest in protecting our constitutional rights against unfettered government access to the most intimate details and communications of our lives.Adam Bates is a policy analyst with the Cato Institute’s Project on Criminal Justice.
Daniel R. Pearson
The United States and China have begun a “bilateral steel dialogue” to discuss curbing surplus global supplies. China is the world’s largest steel producer and exporter. The United States is the fourth largest producer and a leading importer, so a useful exchange of ideas ought to be possible. But don’t hold your breath.
This exercise is likely to amount to a dialogue of the deaf for the simple reason that neither side gives any indication of actually understanding the economics of the situation. Both sides should seek to resolve the dispute by reorienting their policies to align with their underlying economic interests.
Clumsy central planning has led to the greatest oversupply of steel-making capacity the world has ever seen. Chinese policymakers set their steel sector on a path of continual expansion, which led to an eight-fold increase in that country’s steel output over the past 15 years. However, Chinese leaders forgot to build an “off” switch into their steel-making leviathan, which now produces fully half the world’s output.
Clumsy central planning has led to the greatest oversupply of steel-making capacity the world has ever seen.
China should shut down a portion of its steel industry
Countries with market-oriented economies would have stopped building mills long before the expected return on investment became negative. China has not been constrained by such financial discipline. For China, bringing new mills on line actually subtracts value from the economy rather than adding it. New mills devalue all the mills built previously, so asset values of the country’s steel makers have plunged. Then, when China exports steel at bargain prices, it effectively transfers some of that lost wealth to other countries.
It would serve China’s economic interests to shut down a large portion of its steel industry. The country is believed to have in excess of 1,200 million metric tons (MMT) of steel capacity, and actually produced more than 800 million metric tons (MMT) in 2015. For starters, at least 200 MMT of useable capacity should be shuttered permanently. China should do this not because other countries want it to cut back, but because reducing capacity would strengthen the remaining portion of China’s own steel industry. Although more closures likely would be needed, this first step would help to staunch the bleeding and may allow much of the industry—in China and other countries—to return to profitability.
Since steel is a globally-traded commodity, China’s excesses are bedeviling steel producers around the world. The United States is no exception. In the face of rising imports, American production declined 11% over the past four years, dropping from 89 MMT in 2012 to 79 MMT in 2015. Some firms are losing money. U.S. steel producers are justifiably unhappy with the circumstances.
Protectionist measure by the U.S.
Unfortunately, U.S. policymakers seem determined to follow a protectionist path that won’t provide much (if any) help to the U.S. steel industry, but definitely will hurt the broader U.S. economy. Steel producers hope that imposing a few more anti-dumping or countervailing duty (AD/CVD) restrictions might help to raise prices by further limiting imports of steel. However, the 149 AD/CVD measures currently in place obviously haven’t returned the steel industry to health, so it’s folly to think that a handful more would make any difference.
The real cost of import restrictions is the harm they do to manufacturers of value-added products that use steel as an input. Those downstream manufacturers are a much larger factor in the U.S. economy than are steel producers. Department of Commerce statistics indicate that “primary metal manufacturing,” which includes steel, copper, aluminum, magnesium, etc., added about $60 billion of value to the economy in 2014. Downstream manufacturers that utilize steel as an input generate value added of $990 billion, more than 16 times larger. Employment by primary metal manufacturers was 400,000, while downstream manufacturers employed 6.5 million, also 16 times greater.
Steel import restrictions have made the United States a high-priced island in an ocean of low-priced steel. U.S. prices have not been high enough to return the steel industry to profitability, but they are high enough to give imported goods an advantage when competing in the U.S. market against domestic manufacturing firms. Carrier has been criticized by politicians for its decision to move 2,100 air conditioner jobs from Indiana to Mexico. It seems likely that the many AD/CVD duties against steel—not to mention restrictions on imports of copper tubing and aluminum extrusions—played a role in that decision. Carrier can escape those policy-imposed costs simply by moving production across the border.
A clear message to China
The United States should deliver this message to the Chinese: Thank you for transferring so much wealth from China to the United States by selling low-priced steel. It’s helping to keep our large manufacturing sector globally competitive.
This approach has a decent prospect for getting the attention of Chinese leaders and encouraging them to downsize and restructure their steel industry.
And, after tweaking the Chinese, U.S. officials should follow up by reforming AD/CVD laws so that import restrictions could be imposed only when economic analysis shows that benefits would outweigh the costs. It makes no sense to respond to economic harm caused by low-steel prices by imposing policies that do even more damage to the U.S. economy.Dan Pearson is a senior fellow in trade policy studies at the Cato Institute. He served on the U.S. International Trade Commission.